Download Spring 2015 TEST 3 w/o solution

ECON 2105 Exam #3 Chapters 6-8 VERSION A
Date: April 15, 2015
Format:: 25 Multiple-Choice Questions/Problems
Resources Allowed: calculator (no cell phones allowed); 4 pages of notes (2 sheets of paper,
front and back only)
Extra Credit Paper for Exam#3: Must be turned in at the end of the exam with your
scantron. Will not be accepted late or by email.
Name: __________________________ Date: _____________
1. Falling inventories indicate ______ unplanned inventory investment and a ______
economy.
A) negative; slowing
B) positive; growing
C) negative; growing
D) positive; slowing
2. Suppose that political instability in the Middle East temporarily interrupts the supply of
oil to the United States. Which of the following is most likely to occur?
A) The aggregate demand curve shifts left, output decreases, and prices decrease.
B) The short-run aggregate supply curve shifts right, output increases, and prices
decrease.
C) The aggregate demand curve shifts right, output increases, and prices increase.
D) The short-run aggregate supply curve shifts left, output decreases, and prices
increase.
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Use the following to answer question 3:
Figure: Inflationary and Recessionary Gaps
3. (Figure: Inflationary and Recessionary Gaps) If the economy is in short-run equilibrium
at Y1 in panel (b), a contractionary policy to bring the economy back to potential output
at YP would attempt to
A) shift the LRAS to the left
B) shift the aggregate demand curve to the left by decreasing aggregate demand.
C) shift the aggregate demand curve to the right by increasing aggregate demand.
D) shift the SRAS to the left
4. Suppose the banking system does NOT hold excess reserves and the reserve ratio is
20%. If Sam deposits $500 cash into his checking account, the banking system can
increase the money supply by:
A) $2,500.
B) $400.
C) $2,000.
D) $5,000.
5. If the currency in circulation is $100 million, checkable bank deposits are $500, savings
deposits are $300 million, and travelers' checks are $10 million, then the M1 money
supply is:
A) $410 million.
B) $900 million.
C) $100 million.
D) $610 million.
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6. Rising inventories typically indicate _______ unplanned inventory investment and a
_________ economy.
A) negative; slowing
B) positive; expanding
C) negative; expanding
D) positive; slowing
7. If the MPS is 0.1, then the tax multiplier is:
A) more than 10.
B) less than 10.
C) exactly 10.
D) exactly 0.1.
Use the following to answer questions 8-9:
Figure: AD–AS Model I
8. (Figure: AD–AS Model I) If the economy is at point X, the appropriate fiscal policy is to:
A) decrease the money supply and interest rates.
B) increase taxes and decrease government spending.
C) decrease taxes and increase government spending.
D) increase the money supply and interest rates.
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9. (Figure: AD–AS Model I) If the economy is at point X, the appropriate monetary policy
is to:
A) increase the money supply and decrease interest rates.
B) decrease the money supply and increase interest rates.
C) decrease taxes and increase government spending.
D) increase taxes and decrease government spending.
Use the following to answer question 10:
Figure: Changes in the Money Supply
10. (Figure: Changes in the Money Supply) Refer to the information in the figure Changes
in the Money Supply. If the supply of money shifts from S1 to S2, the Federal Reserve
must have _______ bonds in the open market.
A) issued new
B) sold
C) borrowed
D) bought
11. According to the wealth effect, when prices decrease, the purchasing power of assets:
A) decreases and consumer spending increases.
B) decreases and consumer spending decreases.
C) increases and consumer spending increases.
D) increases and consumer spending decreases.
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Use the following to answer question 12:
Figure: Aggregate Expenditures and Real GDP
12. (Figure: Aggregate Expenditures and Real GDP) At a real GDP of $9,000 billion:
A) there will be no unplanned investment.
B) planned investment is less than investment.
C) planned investment equals investment.
D) planned investment is greater than investment.
13. Which of the following will shift the short-run aggregate supply curve to the right?
A) a decrease in government purchases of goods and services
B) an economy-wide decrease in commodity prices
C) an increase in nominal wages
D) a decrease in productivity
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Use the following to answer question 14:
Figure: Policy Alternatives
14. (Figure: Policy Alternatives) If the economy is in equilibrium at Y1 in panel (a) and the
government increases government spending, the result will likely be
A) deflation.
B) inflation.
C) an increase in unemployment.
D) a decrease in interest rates.
15. If other things are equal, expectations of lower disposable income in the future would
________ and shift the consumption function _________.
A) decrease autonomous consumption; down
B) increase the marginal propensity to consume; up
C) decrease the marginal propensity to consume; down
D) increase autonomous consumption; up
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Use the following to answer question 16:
Figure: Fiscal Policy I
16. (Figure: Fiscal Policy I) Suppose that this economy is in equilibrium at E1. If there is a
decrease in taxes, then:
A) AD1 will shift to the right, causing an increase in the price level and an increase in
real GDP.
B) AD1 will shift to the right, causing a decrease in the price level and an increase in
real GDP.
C) AD2 will shift to the left, causing a decrease in the price level and a decrease in the
real GDP.
D) AD2 will shift to the left, causing an increase in the price level and a decrease in
real GDP.
17. In the long run, inflationary and recessionary gaps are self-correcting because,
eventually:
A) nominal wages rise in order to close a recessionary gap and fall to close an
inflationary gap.
B) nominal wages rise in order to close an inflationary or fall in order to close a
recessionary gap.
C) the government applies the right combination of fiscal and monetary policies.
D) the multiplier compensates the negative supply or demand shocks.
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Use the following to answer question 18:
Figure: Monetary Policy and the AD–SRAS Model
18. (Figure: Monetary Policy and the AD–SRAS Model) Refer to the information in the
figure Monetary Policy and the AD–SRAS Model. If the economy is in a recessionary
gap at point f, it could move to point g as a result of:
A) an increase in the money supply.
B) selling government securities in the open market.
C) raising the discount rate.
D) a decrease in the money supply.
19. Suppose that consumer expectations about the future improve. How will this affect the
aggregate demand curve?
A) The aggregate demand curve shifts to the right.
B) There will be a movement downward along the fixed aggregate demand curve.
C) There will be a movement upward along the fixed aggregate demand curve.
D) The aggregate demand curve shifts to the left.
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Use the following to answer question 20:
Figure: The Multiplier
20. (Figure: The Multiplier) If this economy is currently at Y1 and investment spending
increases, then:
A) an upward movement along the AD1 will take place, reflecting an increase in the
price level.
B) a downward movement along the AD1 will take place, reflecting a decrease in the
price level.
C) AD1 will shift to the right, reflecting a multiplied increase in the real GDP at every
price level.
D) AD1 will shift to the left, reflecting a multiplied decrease in the real GDP at every
price level.
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Use the following to answer question 21:
Figure: Consumption Functions
21. (Figure: Consumption Functions) An economy's consumption function would shift from
curve C to curve Cʹ when there is a(n):
A) increase in expected future GDP growth estimates.
B) drop in wealth.
C) increase in the unemployment rate.
D) increase in expected future disposable income.
Use the following to answer question 22:
Scenario: Consumption Spending
Suppose that the consumption function is: C = $500 + 0.8 × YD, where YD is disposable income.
22. (Scenario: Consumption Spending) If income increases by $2,000, consumption will
increase by:
A) $400.
B) $1,600.
C) $500.
D) $2,000.
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23. A recessionary gap can be closed by _______ wages that shift the _______.
A) falling; LRAS curve to the right
B) falling; SRAS curve leftward
C) rising; SRAS curve rightward
D) falling; SRAS curve rightward
Use the following to answer question 24:
Figure: Policy Alternatives
24. (Figure: Policy Alternatives) Assume that the economy depicted in panel (a) is in shortrun equilibrium at a real GDP level of Y1. Doing nothing and letting the economy
correct itself:
A) occurs in the long run when wages fall.
B) occurs in the short run as wages rise.
C) occurs because the aggregate demand curve shifts.
D) is called fiscal policy.
25. Suppose that a financial crisis decreases investment spending by $100 billion and the
marginal propensity to consume is 0.8. Assuming no taxes and no trade, by how much
will real GDP change?
A) $800 billion decrease
B) $500 billion decrease
C) $400 billion increase
D) $200 billion decrease
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Answer Key
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C
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B
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A
B
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